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New tiebreaker rule for CARF judgments in Brazil is approved

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The casting vote has grown in importance in recent years

Ana Paula S Lui Barreto and Natalie Matos Silva of Mattos Filho evaluate the commercial response to the introduction of the new rule and consider its significance.

Playing an important role in the complex Brazilian tax litigation structure, the Administrative Court of Tax Appeals (CARF) is the Ministry of Economy’s division responsible for the judgment of appeals filed by taxpayers to challenge tax assessment notices that are issued for the collection of federal taxes.

CARF’s judgment panels are composed by an equal number of judges appointed both by the tax administration and by the associations of taxpayers, and all of them are specialised in tax matters. This configuration leads to a reasonable assumption that the disputes under discussion at this court would be found to be equitable and fair solutions. 

Reforming the structure

In 2016, CARF went through a reform aimed at providing greater transparency to its proceedings and judgment sessions. After Operation Zelotes, it was undisputable that some structural changes were necessary and welcome.

As a side effect of this reform, tax practitioners could notice a sudden overturn in the positions adopted by the judges regarding relevant matters, such as the deductibility of the goodwill amortisation and the application of increased penalties due to fraud allegations. If in the past there was a broad spectrum of favourable decisions, the wins of taxpayers became more and more scarce from 2016 onwards, especially at the level of the Superior Chamber of Tax Appeals (CSRF).

In fact, a great number of cases decided against the taxpayers’ interests derived from tied disputes between judges representing the tax authorities and judges representing the taxpayers. However, in these cases, the tie was solved by the casting vote given by the head of the panel, who is always appointed by the tax administration.

Even though the casting vote had already existed for decades, it has grown in importance in recent years. At the CSRF level, it was largely used to make prevail certain restrictive legal interpretations adopted by the Brazilian Internal Revenue Service in key tax topics. 

However, a law that came into effect on April 14 2020 that establishes a new tiebreaker rule for judgments at CARF: according to Article 28 of Law No. 13,988/2020, if a tax dispute ends up in tie vote, the case must be decided in favour of the taxpayer. In other words, the taxpayers would have a chance of winning cases in matters that for many years were upfront considered lost at the tax administrative level, which may have led to lengthy and costly judicial lawsuits.

Divided opinions

Since its approval, the end of the casting vote became a subject of controversy. While many tax experts and scholars praised the new rule, as it would represent an inversion of a long trend of cases of great impact to the taxpayers being decided solely in benefit of the tax administration, an opposite reaction came quickly and sharply.

In the Supreme Court, three different lawsuits were filed to challenge the constitutionality of the new law, based on the allegations of loss of government’s revenues and violation of the proper legislative process. It is argued that the article that abolished the casting vote has no relation with the subject of the Law No. 13,988/2020 (renegotiation of federal tax debts) and it was not originally in the text of the Provisional Measure No. 899/2019, subject to discussion in the Congress.

Another reaction came with the Ordinance No. 260/2020, enacted by the Ministry of Economy. According to this set of rules, the new tiebreaker rule is only applicable in favour of the taxpayer and cannot benefit, for instance, those that are legally deemed as responsible for the taxes charged. 

It also states that new law is aimed only at proceedings initiated to the determination of taxes to be collected, meaning that other types of proceedings, such as an off-setting, could not be decided in favour of the taxpayer in case of a tie vote. The publication of Ordinance No. 260/2020 produced a counter-reaction by the Congress, since it went beyond the regulatory powers of the Ministry of State.

Due to the COVID-19 pandemic, CARF is holding virtual judgment sessions either to cases less controversial or with minor amounts involved, so the taxpayers still have not had the chance to see the application of this new rule to the most relevant cases, that in the past were solved by the casting vote. 

Certainly, in the next few months, this matter will evolve. It remains to be seen how the Supreme Court will judge the lawsuits against Article 28 of Law No. 13.988/2020, which treatment the Congress will provide for Ordinance No. 260/2020 and how CARF will apply the new rule to more challenging cases.

Ana Paula S Lui Barreto

T: +55 11 3147 7713


Natalie Mattos Silva

T: +55 11 3147 7584


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